Markets shoot higher on QE3 news

After the announcement by the Federal Reserve of a further $40 billion a month to buy mortgage backed securities on an unlimited basis until employment rates improve (making a total of $80 billion a month with Operation Twist), the markets have responded very positively. The Dow Industrials moved 207 points higher, to finish at 13,540, the highest finish since December 2007. The FTSE 100 is currently up 88 points to 5,909 with the other European markets also sharply higher.

With the world’s largest economy now gorging on stimulus, and with heigtened global growth predictions, mining companies are also having a good day after a solid week. BHP Billiton is up 4.7% to £20.25, Rio Tinto is up 6.2% to £32.69 and Xstrata is up 5.5% to £10.47.

After the warm glow given out as a result of the action taken Bernanke and his friends, the big question is where things are going for the rest of the year after this mini rally. The eurozone problems have gone quiet for now but not disappeared and all eyes will be on the next US earnings season starting in October for evidence of the robustness of the corporate sector. With the US Federal Reserve seemingly throwing the kitchen sink at any weakness in the US economy and China investing more money into infrastructure a big sell off in equity markets seems unlikely for now even after this rally.

Contrarian Investor UK